Financial Breakdown Of A Primary Care Clinic: How Much Money Does It Make

Today we are going to take a look at the financial breakdown of a primary care clinic that has recently opened. The numbers in this post are not my clinics financial numbers exactly. I don’t want to “dox” myself and I want to give anyone interested an idea of what is generally possible if you work hard. I’ve used the national average income for primary care physicians for gross revenue. The expenses are based on my expenses 6 months into being open. In some cases, I have rounded numbers to the nearest dollar amount for ease of reading. Keep in mind that this is a generalization. Costs may be slightly higher or income might be higher or lower.

Now, lets have some fun and look at the monthly financial breakdown of a primary care clinic.

 

Gross (Total) Revenue

This is the total amount of money that is brought into the clinic before any taxes, expenses, or deductions.

In order to understand gross revenue, we must first understand how doctors bill.

Doctors bill based off RVU’s, relative value units. Every service provided by a physician has a unique code and can be billed for. For example, smoking cessation counseling, time spent between 3-10 minutes: The code is 99406.

The government has assigned an RVU to each code. For example, a complex new outpatient visit is 3.17 work RVU’s or 2.38 RVU’s. There is a difference between (work RVU abbreviated wRVU) and (RVU). This will be outside the scope of this post, but if you want to know a bit more, here is a nice PDF from UCSF. Basically, the larger RVU number includes facility fees, overhead, the work done, and total RVU also includes malpractice premium payments due to risk for each procedure.

Medicare on average pays about $66 per wRVU (in my area for 2019). The average primary care physician bills for about 5,000 RVU’s per year, which would equal about 7,000-8,000 wRVU per year. It’s unclear to me if these papers also count consumables such as vaccines in those RVU’s, which will add to the overall revenue.

To make numbers simple, lets say that the average primary care doctor bills for about $500,000 in insurance reimbursements per year. This is not an unreasonable amount at all for a full time primary care doctor who is seeing 15-25 patients a day. With this estimate our doctor is bringing in a gross revenue per month = $41,666.

Keep in mind this is an average number, work hard and you can increase the amount you’re bringing in each month.

 

Expenses

Below are my average recurring expenses for the clinic at the six month point.

For my example, lets say as a new practice you decide to pay yourself $10,000 a month until you get a better sense financially of how things will go. This is exactly what I decided to do. I think this is a reasonable salary contribution for a start up medical practice. However, you might not take a salary for the first month or two after opening your practice ( I didn’t). As an owner, you will also be able to take distributions from the company in the form of dividends for any net income. I take these distributions quarterly.

It may be enticing to try to pay yourself totally in distributions to avoid paying payroll taxes, but this is something that will land you in trouble with the IRS. According to the IRS, you need to pay yourself a reasonable salary for your position worked. Reasonable is left up to interpretation and is based on many different factors. I am not a tax expert, so if you want to know exactly how you should pay yourself, then you should consult a local accountant. My accountant has told me not to even get close to the 50% salary, 50% dividends for payment structure. That for sure more than 50% should be taken as salary.

 

So, lets take a look at my average monthly bills for my first 6 months open.

 

  • Advertising: $700 (FYI: Now  that I’ve maxed out my panel, I’ve stopped paid advertising)
  • Insurance (This is not including health insurance for employees. This is Malpractice insurance cost, workers comp): $1,400
  • Office Supplies $800
  • EMR and Billing Software: $450
  • Wages + benefits for employees: $17,000 (2 employees + Doctor)
  • Taxes: $1,800 (As the employer you will have to contribute to taxes per employee paycheck. Social Security 6.2%, Medicare 1.45%)
  • Telephone $120
  • Rent: $3,500 (I share rent with another physician which is why it may appear low)

Total expenses: $25,870

 

Net Income:

The income left over after all expenses as above: $16,796

So, the doctor in this situation is getting paid $10,000 in salary and $16,796 available left over for distributions. This won’t fly with the IRS and I suspect will earn you a letter from them plus possible penalties trying to avoid paying payroll taxes. So, salary will have to be adjusted up and distributions will have to go down to avoid trouble with the IRS.

Total yearly gross salary for this primary care doctor who owns their own clinic is $321,552 per year.

Total overhead excluding the doctors salary: 36% in this example.

For those of you who do not think this is possible, my clinic continues to hover around 30% for my overhead (excluding physicians salary). We run lean, work hard, and overall love what we do. It was hard finding good help. I had to fire my first employee pretty quickly. However, despite all the negatives to running a business, this has been the most rewarding thing that I have ever done. If you choose to work more or less, you can make significantly more or less income accordingly.

 

The Drawbacks:

There are many drawbacks for the primary care clinic. Yes, the high potential salary is a blessing, but there area always drawbacks.

 

First, the doctor in this example is always on call, and if you averaged out pay per hour it wouldn’t be great compared to hospitalist work. I am on call 24/7, every holiday and every weekend while self employed. A huge drawback for many.

 

Second, there is a lot of stress to owning and running a medical practice. I have no business manager. This puts extra money in my pocket but extra work on my lap. If you are not the type of person who doesn’t mind writing an employee up for being late, working on payroll hours, or fixing a broken printer, then you won’t mind the job. There is a lot of bureaucratic paperwork that goes along with the job, like reporting to the state wages and paying payroll taxes quarterly. I have spent many hours after clinic on setting up the business of a primary care office.

 

Third, the stress of the unknown can get to you. Many sleepless nights were had when I started my practice. I was so worried no one would ever show up. I also was worried how things would go practicing solo, not having other doctors to bounce ideas off of if I had a question in clinic.

 

Finally, primary care is hard. If you want to open your own primary care clinic get ready. Primary care is very hard. Dealing with possibly 5+ chronic illnesses, worrying about preventative medicine, dealing with some demanding patients, and on top of that running a clinic can burn anyone out. You can easily get buried in paperwork and frustrated with patients who are angry with you. The job is already tough and adding another difficult factor to the job for most people seems to be a huge reason to avoid owning their own practice.

 

The Grass Can Always Appear Greener

 

It is not all roses, but I will say that demanding patients are everywhere. There are tough days, there are many more great days. Most of my patients are wonderful, kind, and want to get better. It is a blessing to have such potential high income in our profession. Overall, I wouldn’t change how things are going for any amount of money. I’ve built a steady panel of patients and things have become more on autopilot every day I show up to work. To all the people considering starting their own practice: The beginning is definitely the hardest. It gets so much better!

 

If you are even considering opening up your own practice, I say go for it!.

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